Reserve Bank of India Governor Shaktikanta Das on Tuesday said “increasingly it is felt that there is a need to give permanent status” to the Finance Commission and constitution of State Finance Commissions every five years.
“The Commission can function as a leaner entity in the intervening period till the next Finance Commission is set up in a full-fledged manner. During the intervening period, it can also address issues arising from implementation of the recommendations of the Finance Commission,” Das said. The Commission is constituted by Centre every five years.
Speaking at the launch of the book ‘Indian Fiscal Federalism’ authored by former RBI Governor Y V Reddy and G R Reddy, Das said, “Over past several decades, Finance Commissions have adopted different approaches with regard to principles of tax devolution, grants to be given to states and fiscal consolidation issues. While at one level, there has to be a framework for fresh and innovative thinking by every Finance Commission; at another level, there is a need to ensure broad consistency between Finance Commissions so that there is some degree of certainty in the flow of funds, especially to the states, Das said.
This has become even more critical in the post GST scenario, Das said, adding that there has to be continuity and change between Finance Commissions.
The 15th Finance Commission, constituted in November 2017, will give recommendations for devolution of taxes and other fiscal matters for five fiscal years, commencing April 1, 2020.
“The principle of decentralisation works better when powers and functions are delegated based on which tier of governance is best suited to fulfill that responsibility,” Das said. He further said that the constitution has already provided for delegation of certain functions to the urban and rural local bodies; but it is seen that there is still good distance to traverse when it comes to devolution of funds to these local bodies.
Das said it is essential that State Finance Commissions are constituted every five years as per the mandate in Article 243I of the Constitution and arrangements are made for their robust functioning. “Although the provision under Article 243I is identical to the provision under Article 280, its implementation has fallen short. There could be reasons for the same, but they need to be addressed on priority,” he said.
He said recent initiatives in fostering co-operative federalism have opened new chapters in co-operation between Centre and States. The GST Council is functioning on the principle of shared sovereignty. “As Y V Reddy and G R Reddy point out in their book, the sacrifice of fiscal autonomy at both levels of government in favour of the Council needs to be seen as a ‘trade-off’ so as to reap the benefits of tax harmonisation. Indeed, the Indian model of GST preserves the essence of Indian federalism,” Das said.
Das added that the market response to the liquidity tool of dollar swap auction worth $5 billion has been received quite well. “By and large I think it has been received quite well. However, the exact response to the scheme will be known on March 26,” he said.